Required reserves are the minimum amount of funds that a bank must hold, normally as a balance at its central bank and in some countries partly as vault cash, against its deposits or other specified liabilities. The amount is worked out by applying a percentage, the reserve requirement, to the bank's reservable liabilities. Most central banks let banks meet the figure on average over a maintenance period rather than every day, which helps steady short-term money market rates.
Any balance held above the minimum counts as excess reserves. Raising the requirement ties up bank funds and tightens credit, while lowering it does the opposite, so it is a tool of monetary policy, used actively in some emerging economies. Its role has shrunk elsewhere: the US Federal Reserve cut its reserve requirement ratios to zero in March 2020 and steers rates mainly through interest on reserves.